Silver continues to hover near support
Silver markets did very little during the trading session on Wednesday, as we continue to build a bit of sideways momentum after a significant break down. The question now is going to be whether or not the breakdown mattered, or it was simply an opportunity to start buying again?
$15 is crucial
The $15 level is absolutely crucial in the silver market, as it is essentially the 50% Fibonacci retracement level from the bottom and could also be thought of as “fair value”, as the $14 level has been the bottom of major consolidation, while the $16 level of course has been major resistance. The pullback wasn’t a huge surprise, because the highs started flattening out several weeks ago, and now we have simply seen an exiting of longs. Now the question is whether or not the value hunters are coming back?
The other side of the story of course is that we break down. If we get below the $14.90 level, it’s very likely that we go looking towards the $14.50 level underneath. Beyond that, we could go back to the $14 level, but that would be a longer-term trade. We believe at this point the next 48 hours may end up being rather crucial for this market because of the importance of the level that we are at.
Follow the US dollar
The US dollar continues to struggle at the 97 handle in the US Dollar Index, so it is possible we may see a bit of the greenback selling. The fact that Friday is the nonfarm payroll announcement isn’t lost on us, recognizing that there is probably going to be a significant amount of volatility in that currency. If the US dollar falls, that could be reason enough for silver to make a move towards the $15.40 level. That coincides nicely with the 200 day EMA, and as a general rule, precious metals tend to do well when the greenback falls. This is especially true with silver, as it is considered to be the “poor man’s gold.”
One thing that you will probably need to pay attention to is industrial demand, or at least the concept of it. After all, unlike gold silver is an industrial metal of magnitude, and therefore is a lot more sensitive to global growth and the like. With the jobs number coming out that could also throw yet another variable into the picture.
The support underneath
One thing that does make an argument for buyers to get involved is that the area between $14 and $15 was a major area of trading for several months. Because of this, you should suspect that there are a lot of buying participants underneath, who are more than willing to defend their positions. That being said, it’s probably going to take something special to break above the $16 level. At best, we are probably looking at a bounce in the short term, but it does seem like a viable trading opportunity.
The market looks as if it has been trying to build a bit of a base for some time and considering that Silver had been so negative for so long, it’s not a surprise that we would get this big pullback. After all, if you are trying to change the overall trend, quite often it takes a lot of work. These can be very messy affairs but given enough time everybody else will jump on board. Remember, to the downside $14.90 is crucial, as it could lead to deeper corrections.